Key Takeaways

• The court found that the SEC’s reliance on the argument that BNB tokens represent investment contracts throughout their lifecycle is insufficient.
• The dismissal may provide a legal basis for other exchanges to contest similar regulatory challenges.

The US Securities and Exchange Commission (SEC) lost its bid to classify sales of BNB, Binance’s native token, on secondary markets, and the Binance USD (BUSD) stablecoin as securities, according to a court filing signed by Judge Amy Berman Jackson on June 28.The court referenced Judge Analisa Torres’ 2023 ruling in the SEC vs. Ripple Labs case to dismiss the secondary BNB sales claim. It stated that determining whether a secondary market sale is a sale of an investment contract depends on the totality of the circumstances and the economic reality of each specific transaction.According to the filing, the SEC’s contention was based on the idea that if BNB was initially sold as an investment contract, any subsequent token sale would also be considered a sale of a security.However, the court stated that this assertion does not hold, as it does not consider each secondary transaction’s specific details and context. In other words, just because BNB tokens were initially sold as investment contracts does not mean they remain securities throughout their lifecycle.The court also highlighted inconsistencies in the SEC’s stance and noted that more facts are needed to plausibly allege an expectation of profits from secondary sales under the Howey test.Scott Johnsson, Van Buren Capital’s general partner, called the ruling a “big loss” for the SEC.

Wow, big loss for the SEC in Binance re: secondary sales. I was expecting this type of analysis from Failla, but Berman seems to have given it instead. pic.twitter.com/5vPPew4WLl

— Scott Johnsson (@SGJohnsson) June 29, 2024

James “MetaLawMan” Murphy, a crypto-focused attorney, also celebrated the decision, calling it “a win for the greater crypto industry.”

The Judge is permitting a number of claims to proceed based on the $BNB ICO and @binance‘s staking as a service.

But the ruling dismissing the SEC’s claims involving secondary market sales by third parties is clearly a win for the greater crypto industry.

— MetaLawMan (@MetaLawMan) June 29, 2024

The court’s dismissal of the SEC’s argument about BNB secondary sales could influence other cases where crypto exchanges like Kraken and Coinbase are involved, as they face similar charges from the SEC for trading crypto assets considered unregistered securities.Most charges move forwardWhile the court dismissed the SEC’s secondary market sales claim, it mostly sided with the SEC in its lawsuit against Binance.As noted, the SEC can continue investigating Binance’s staking program, the sale of BNB tokens after their initial coin offering (ICO), and potential anti-fraud violations.The court will also consider the SEC’s claims that Binance’s former CEO, Changpeng Zhao, significantly influenced Binance and that Binance should have registered as an exchange.CZ is currently serving a separate sentence for violating money laundering laws.The SEC vs. Binance lawsuit started in June last year when the securities regulator sued Binance and its founder, Changpeng Zhao, alleging that Binance was operating illegally in the US by offering the sale of unregistered securities.About three months later, Binance filed a motion to dismiss the SEC lawsuit, arguing that the SEC had exceeded its legal authority.Following the latest court order, the next court hearing is scheduled for July 9.